The UK should not "abandon" the "right to a fair trial" in the wake of the July bombings in London, Mr Oaten told the Lib Dem annual conference in Blackpool.

He said: "If we give up the fundamental principles of justice, we are giving in to the terrorists.

"And if we sacrifice our liberal society we will be weaker, not stronger."

He said he would work with Home Secretary Charles Clarke, adding: "But we will also defend the rights and liberties of the country."

Speaking earlier at a press conference, Mr Oaten said there had been a "genuine consensus" on terror legislation in the wake of the London bombings, when the opposition parties were "discussing a limited number of measures" with Mr Clarke.

But Tony Blair's announcement of a raft of additional proposals at the beginning of August, including banning people who advocate terror, "was extremely unhelpful" and led to that consensus being broken.

Former parliamentary party chairman Matthew Taylor says the Lib Dems should not be even talking to the government about plans to extend the time limit for holding terror suspects without trial to three months.

He says the current 14-day limit is too long.

Prison reform

Mr Oaten also called in his speech for an end to the "national disgrace" of "crumbling" Victorian-built prisons.

Within two years of release, 59% of prisoners were back in court, he added.